Expense Management is a tricky area for businesses since it has an impact on every single aspect of a business. Any business owner who wants to optimise operations and is looking to save money needs to understand expense management without quality compromise.
Expense management is an organised methodology that governs policies regarding office expenses, expense reports, and approvals. The key thing to note is that expense management is not just a reporting mechanism or a budget tracking exercise; it is a much broader ongoing exercise to ensure that all spending is managed carefully.
Let us understand in detail-
What Is Expense Management Policy?
A formalised set of guidelines outlining approvable expenses, procedures to be followed, and exceptions that can be taken is known as the Expense Management policy. There are certain other elements such as timelines for reimbursement, expense rejection reasons, and guidelines, escalation matrix, exception grid, etc.
One of the key advantages of having an expense management policy is that it provides a standard set of rules for expense management. Not only does this benefit the controllers but also helps managers make more informed and objective calls. It also serves a dual purpose of information dissemination and employee awareness – ensuring that employees make themselves familiar with the rules and regulations.
In the larger scheme of things, it also ensures that the possibility of financial fraud is minimised.
Expense Management Best Practices
Typically, there are some key objectives that companies want to achieve with expense management. These include:
- Insights into the company’s financial health
- Identification of key areas of employee spending
- Regulation of reimbursement cycles
- Compliance and tax management
- Audit and Documentation
You can read more about how to decide on the right expense management software here.
In order to achieve these objectives, there can be multiple ways. However, certain best practices that have worked well in the industry can prove to be useful in identifying the right approach and creating a set framework.
Expense Management Policy: Defining the frame
A clear, lucid, and uncomplicated expense management policy forms the foundation of expense management in businesses. The expense management policy establishes the necessary trust and transparency among employees by giving them the necessary information and establishing procedures.
Key elements of an expense management policy include acceptable expenses, a timeline for the process, a process for submission, and reimbursement methods. Whether you are framing a new policy or enhancing an existing policy, taking a buy-in from employees is advisable.
Establishing Accountability
A company can establish accountability with respect to expense management by setting clear expectations for employees, as well as providing detailed guidance on policies and procedures. By setting expectations, a company can ensure that employees have a better understanding of what is expected of them, and are held accountable for their actions.
Additionally, providing employees with the necessary guidance on policies and procedures helps to ensure that they are compliant with company regulations, and ultimately helps to reduce the risk of employee fraud or other financial mismanagement.
Build in The Approval Process
Building in the approval process is important to ensure expense management in a business because it helps to ensure that expenses are only incurred for legitimate business purposes and are within the budget. The approval process also helps to ensure that expenses are accurately tracked and recorded. It also helps to identify any potential misuse of funds or fraud.
Additionally, the approval process can help to ensure that expenses are allocated to the correct accounts and categories.
Making Credit Cards your friends
Using credit cards can help a company manage its expenses in a few ways. First, credit cards can provide a more efficient way to track expenses. Companies can use a credit card to make purchases, and then access an online statement detailing every purchase. This can help companies easily analyze and report spending.
Additionally, corporate credit cards can help a company allocate its budget more effectively. Companies can set spending limits for each card, helping to ensure that expenses are kept within budget. Finally, credit cards can offer rewards or cash back, which can be used to offset company expenses.
Specifying the Required Documentation
Specifying the required documentation can help with expense management in a company by providing a clear and consistent set of standards for employees to follow when submitting expenses. This helps to ensure that only valid and legitimate expenses are reimbursed, reducing the potential for fraud or misuse of company funds.
It also helps to streamline the expense claim process by eliminating unnecessary paperwork, ensuring that expenses are processed more quickly and efficiently. Finally, it helps to ensure a more accurate record-keeping system, allowing for better budgeting and more effective financial planning.
Identifying Vendors of choice
Listing vendors of choice, or preferred vendors, can help in expense management in a company by helping to ensure that all purchases are made with reliable, cost-effective vendors. This can save money by avoiding overpriced or low-quality products.
Additionally, listing preferred vendors helps to streamline the purchasing process, as the company can refer to the list when making a purchase, instead of having to research potential vendors. This saves time and ensures that the company is always getting the best price. Finally, having a preferred vendor list can help the company build relationships with vendors they know they can trust, which can lead to better deals and discounts in the long run.
Making Expense Analysis a habit
Analysing data with respect to expense management can help you identify spending trends, uncover areas of potential cost savings or excessive spending, and identify inefficiencies in the current process. By understanding where their money is going and where they can save, companies can make more informed decisions and ensure they stay within budget while still meeting their business goals.
The biggest challenge for businesses is to ensure that this is a sustained practice – if expense analysis is a fixed responsibility and is done at regular intervals, it goes a long way in making expense management effective and sustainable.
Creating a Reimbursement Policy
The reimbursement policy is a narrower aspect of expense management; they are not interchangeable. Contrary to an expense management policy, a reimbursement policy is a set of rules and guidelines for HOW an employer will reimburse employees for expenses incurred while performing job-related duties.
It outlines how employees can submit reimbursement requests, what types of expenses will be reimbursed, and how reimbursement requests will be approved. Reimbursement is a sensitive topic for employees. The key contribution of a reimbursement policy towards expense management is to ensure that employees are clear about all aspects of reimbursement and do not end up dissatisfied.
Automating Expense Management
Keeping the expense management system manual makes it error-prone. A great way to achieve expense management excellence is to leverage technology. This will streamline the process and minimise errors. Automating expense management will also allow faster processing, detailed analytics for review and actionable insights, and easier access for the employees.
Built-in checks will also ensure that any errors in submitting and/or processing expense claims are flagged off beforehand. Automating expense management through a technology solution also gives you the option to integrate it with your payroll or accounting system, creating an even more efficient process for your finance teams.
Conducting regular audits against fraud
Listing preferred vendors can help in expense management in a company by helping to ensure that all purchases are made with reliable, cost-effective vendors. This can save money by avoiding overpriced or low-quality products.
Additionally, listing preferred vendors helps to streamline the purchasing process, as the company can refer to the list when making a purchase, instead of having to research potential vendors. This saves time and ensures that the company is always getting the best price. Finally, having a preferred vendor list can help the company build relationships with vendors they know they can trust, which can lead to better deals and discounts in the long run.
Paying people in a timely manner
Paying people on time is important for a variety of reasons. It helps maintain positive relationships with employees, and maintain a positive reputation with vendors and suppliers. It also helps ensure that employees are able to budget their finances and are not put under unnecessary financial strain.
Lastly, paying people on time is important for effective expense management, as late payments may lead to cash flow problems and reduced spending power.
Final Words
Today’s market is overflowing with a variety of expense management solutions that offer multiple key features. These include, but are not limited to, invoice management, expense tracking, receipt management, spend and approval process control, and workflow management.
Having a clear understanding of where a company’s funds are being used and by whom is essential for its financial success. Without up-to-date data, businesses run the risk of facing disastrous consequences. To prevent this, expense management software can be a great solution. This type of software automates the expense management process, from receipt management and expense report submission to streamlining workflows and gaining insights from analytics.